Shrink-wrapped software sale receipts are not royalty when no copyright rights are transferred, and are not taxable in India.

Receipts from sale of shrink-wrapped software were treated as consideration for a copyrighted article, not as consideration for transfer of copyright rights. Applying the assessee's own earlier coordinate bench decisions, the Tribunal held that the receipts did not constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-USA DTAA and were therefore not taxable in India. No distinguishing facts for the year under appeal were shown, so the Tribunal followed its consistent prior view and allowed the appeal.

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Issues: Whether receipts from sale of shrink-wrapped software were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the Double Taxation Avoidance Agreement between India and USA.

Analysis: The issue had already been decided in the assessee's own case for earlier years in favour of the assessee. Following those coordinate bench decisions, the receipts from sale of software were treated as consideration for a copyrighted article and not as consideration for transfer of copyright rights. On that basis, the receipts were held not to be royalty and therefore not taxable in India. No distinguishing facts for the year under appeal were shown.

Conclusion: The receipts from sale of shrink-wrapped software were not taxable as royalty in India and the assessee succeeded on the issue.

Final Conclusion: The appeal was allowed after the Tribunal followed its earlier consistent view that sale of shrink-wrapped software does not give rise to royalty income for Indian tax purposes.

Ratio Decidendi: Consideration for sale of shrink-wrapped software, where no copyright rights are transferred, is consideration for a copyrighted article and not royalty.

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